By Erik Wasson - 02/10/11 12:25 AM EST
Federal Reserve Chairman Ben Bernanke faced tough GOP criticism Wednesday in his first appearance before the new Republican majority in the House.
Rep. Paul RyanPaul RyanWhy a bill about catfish will show whether Ryan's serious about regulatory reform Trump is right about one thing Winners, losers of GOP convention MORE (R-Wis.), the chairman of the House Budget Committee, took Bernanke to task over the Fed’s decision to pump $600 million into the economy to create jobs, saying it risks inflation and could weaken the dollar.
“My concern is that the costs of the Fed’s current monetary policy — the money creation and massive balance sheet expansion — will come to outweigh the perceived short-term benefits.”
Bernanke defended the central bank’s decision and signaled stimulating employment, rather than warding off inflation, remains the Fed’s top near-term priority.
“Until we see a sustained period of job creation, we cannot consider the recovery to be truly established,” he said.
Bernanke said that for now, the Fed expects overall U.S. inflation to remain low, and that the Fed is being “extremely vigilant” to make sure it does not wait too long before tightening money policy. He dismissed GOP questions about inflation worldwide, saying it is occurring in emerging markets, not the United States.
Tea Party-backed Republican freshmen also challenged the chairman on a variety of issues, including an upcoming vote to raise the debt ceiling that Bernanke has urged the House to support. They were polite in their questioning, and some of their criticism also targeted both Republican and Democratic presidents and Congresses.
For example, after Bernanke agreed with Rep. Reid RibbleReid RibbleTrump muddies GOP message on protecting the Constitution The emerging fundraising rebellion GOP fears next Trump blowup MORE (R-Wis.) that it would be reckless for the U.S. to default on its debt, the freshman asked Bernanke if it was “reckless to have the level of uncontrolled spending” that the nation has witnessed over the last 20 years.
“Absolutely,” Bernanke responded.
Ribble went on to say that he believes the American people want the deficit to be dealt with now, not over some long-term period.
Ryan’s questioning focused on the Fed’s program of purchasing $600 million in Treasury bonds to stimulate the economy. The program is known as QE2 because it is the second round of “quantitative easing” the Fed has undertaken since the financial crisis.
The Feb believes QE2, which is to be completed in June, is pushing yields on treasuries and bonds down and will produce a surge in investment and consumption. Bernanke said the Fed has estimated that QE1 and QE2, together with other Fed emergency measures, have created 3 million jobs.
Budget Committee ranking member Chris Van Hollen (D-Md.) commended Bernanke for using tools to stimulate employment as well as keeping the dollar sound.
He denounced a Ryan-sponsored bill that would strip the Fed of its mandate to generate full employment and have it only focus on inflation. Ryan and other Republicans did not play up their legislation, prompting Van Hollen afterward to accuse Republicans of abandoning the idea.
Bernanke, under tough questioning from Rep. Scott GarrettScott GarrettThe Trail 2016: Candidate tug-of-war Dem group slams NJ Republican for 'hateful agenda' Divided GOP to powwow on budget MORE (R-N.J.), said QE2 is not the equivalent of printing money to pay the national debt because the purchases are temporary and the treasury bond investment will be sold, with profits returned to the Fed eventually.
Under questioning from Democrats targeting GOP plans to cut $32 billion in spending this year, Bernanke said that short-term cuts without a long-term plan could hurt the recovery more than they stimulate growth.
But he agreed with Ryan that putting a plan in place to bring down the debt would stimulate near-term growth. He stressed, however, that government should take a long-term approach to deficit reduction, and not only look for short-term cuts.
In response to questions about the debt ceiling, Bernanke said a GOP bill to prioritize payments if Congress decides not to raise the nation’s debt ceiling could be helpful but stressed that he would prefer Congress enact a long-term deficit-reduction plan without threatening not to raise the $14.3 trillion limit.
Bernanke offered mixed words for legislation offered by Sen. Pat Toomey (R-Pa.) and Rep. Tom McClintock (R-Calif.) that would require the government to pay bondholders before other creditors.
“Well, it would reduce the risk of the debt limit, that’s for sure,” Bernanke said, before noting it would take “some time to put systems in place” to make the prioritization work.
“You need to [have] some notice to make that practical,” he said. The Fed acts as a payment service for the Treasury, he said, and currently it does not have the computer systems in place to distinguish between bond interest payments and other payments.
Rep. John YarmuthJohn YarmuthOvernight Regulation: Obama unveils new Arctic drilling rules | GOP pushes regulatory budget Republican claims 'universal consensus' for regulatory budget Cameras go dark during House Democrats' sit-in MORE (D-Ky.) asked Bernanke if passing the Toomey bill would mean paying Chinese investors before troops fighting in Afghanistan. Bernanke said it would.
He said that ultimately it is up to Congress to decide whether cutting off Social Security payments and payments to military personnel is a useful thing to do.